The 7 Most Common Mistakes Found in Our Amenities Audit
by Donald Davidoff | August 21, 2018
Over the past couple of years, our company has conducted unit amenity audits for many different operators. The good news is that the concept of identifying unique attributes of each unit and attempting to realize the value of those attributes through variable pricing is a well-established practice in multi-family housing.
The not-so-good news is that we rarely see examples of highly proficient amenity setups. So, at the risk of giving away a little of our secret sauce, here are several of the most common mistakes and/or missed opportunities we’ve seen:
1. Missing amenities
The most common error we find is missing amenities. We’ll find all the units on a particular floor have a floor amenity except for one; or we see units 207 and 407 have a balcony but 307 does not (in this example, all homes ending in 07 are right on top of each other). It’s difficult to know if this was a simple “fumble finger” error when the community was configured in its PMS or whether it was an intentional attempt to reduce a unit’s price sometime in the past. Either way, it’s money left on the table and arbitrarily varying unit-level pricing can cause revenue management systems to get a faulty sense of the actual demand.
2. Missed amenities
Even when we don’t find individual units with obviously missing amenity codes, we frequently find whole categories of amenities missing. For example, corner units are usually a favored location yet we often see few or no units with an upcharge for being a corner unit. Similarly, unit features like fireplaces, ceiling fans, etc. often are not tagged (and charged) as such.
3. Doubling up
While there are exceptions to this rule, it’s rare a single unit has two different views (and prospects would value them in an additive way). Yet we frequently find units with two, sometimes even three, view premiums assigned to them. Overpricing a unit can, in many ways, be worse than underpricing a unit. In the latter case, we simply leave a few dollars a month on the table; in the former, we could incur substantially more vacancy loss by struggling to rent the home at too high of a price.
4. No use of negative amenities
While hopefully not frequently needed, negative amenities can help move those few units that have a negative feature. Fail to adjust downward a unit near the garbage area, in a remote/dark corner of the property or subject to substantial road noise, and you’ll pay for it in increased vacancy loss.
5. Lack of floor premiums
Typically, the higher the floor, the more it is valued. Higher floors are quieter, have nicer views, etc. In some cases (e.g. with an older resident base or in an Orthodox Jewish demographic), lower floors are valued more. Whatever the case, identifying this resident base’s preferences leads to increased revenue by reaping the rewards of that knowledge.
6. Missing or highly inaccurate size (square footage) premiums
Though listed as #6, this might be the most valuable in terms of impacting revenue. Think of it as a reward for reading this far. I am always surprised by the number of times I see two apartments with the same bed/bath count but different sizes priced the same. Or maybe the extra square footage is priced at 50 cents per incremental square foot, while the base floorplan is currently getting $2.00 a square foot. Getting 25% of the base rent for incremental size is well below the 60-70% that we typically see operators can (and should) achieve.
7. Arbitrary adjustment amenities
Last on our list is the dreaded “loss leader” designation or some such name to identify an arbitrary reduction on a unit. If there’s a reason for a negative amenity, then identify it (see #4). If not, these arbitrary adjustments are just lazy ways to reduce a price yet appear compliant on any leasing audits. I recommend eliminating this practice completely.
Bonus: While not a category of amenities, we frequently see situations where operators did a “set and forget” process with their amenities. They never re-evaluated their amenity prices. There are statistically proven ways to tell whether an amenity has been over- or under-priced, and operators should do these reviews annually. Exactly how to do it is best left as a subject for a future blog…or maybe I just don’t want to give away all our secrets in this one. ☺